RICHMOND, Va. – Circuit City Stores Inc. on Monday received final approval for $1.1 billion in financing to keep operating while the nation's second-biggest electronics retailer is in Chapter 11 bankruptcy protection.

U.S. Bankruptcy Judge Kevin Huennekens approved the debtor-in-possession loans at a hearing in Richmond. The financing, which replaces a $1.3 billion asset-backed loan the company had been using, will be used to stock merchandise and pay employees.

Richmond, Va.-based Circuit City filed for bankruptcy protection last month as it faced pressure from vendors and consumers who aren't spending. Its Canadian operations filed for similar protection.

Gregg Galardi, an attorney for Circuit City, said that since filing for bankruptcy, the company's sales have been hurt by the weak consumer spending environment and are down between 40 percent and 50 percent.

Galardi called the financing and restructuring efforts a "bridge to somewhere" and said the company is still pursuing the sale of all of its assets.

Circuit City, which has posted losses for seven of the last eight quarters, plans to keep operating while it develops a reorganization plan to deal with significant declines in traffic and heightened competition from rival Best Buy Co. and others.

The judge also approved a motion to void severance agreements with about 40 former employees, including Philip J. Schoonover, who stepped down as chairman, president and CEO in September. Several employees were granted time to file objections because they had not received adequate notice. Employees can still seek payments like other creditors in the case.

Circuit City also was able to break service agreements with Google Inc. and National Service Alliance Inc., and hotel reservation contracts with the MGM Grand Hotel & Casino in Las Vegas and The Jefferson Hotel in Richmond.

The company said the contracts were "financially burdensome and unnecessary," according to court documents. The court filings did not say how much Circuit City would save by voiding the contracts.

Schoonover, who was replaced by Vice Chairman and Acting President and CEO James A. Marcum, was expected to receive at least $1.8 million in a severance deal after resigning from his post, according to regulatory filings.

The judge also said he would rule at a Jan. 29 hearing on whether Circuit City could break the leases for all but one of the 155 stores it plans to close this month. The company canceled an auction of the leases last week because it received too few bids. Monthly expenses for those leases are about $6 million, according to court documents.

Circuit City now plans to break a total of 304 leases. That includes 150 leases it had already received approval to break earlier this month for places where it no longer operates stores, which the company said cost $40 million annually.

Circuit City announced plans in early November to close 155 of its more than 700 U.S. stores by Dec. 31 and lay off about 17 percent of its domestic work force, or up to 7,300 people. The affected stores are spread across 28 states, including multiple locations in Phoenix, Atlanta and other areas.

The company, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, hopes to emerge from court protection in the first half of next year. At that point, it could seek a buyer or operate on its own again.

WASHINGTON (Reuters) –
The desperate straits of many U.S. homeowners showed in new data released on Monday, suggesting efforts to help them are having limited success.

As the recession throws more people out of work, the rate of re-default on modified mortgages is rising and may worsen as the economy deteriorates, banking regulators said.

After much browbeating from Congress, banks and other mortgage lenders are beginning to do more, to modify home loans so that distressed borrowers can avoid foreclosure.

But the latest figures from regulators raise questions about how modifications are being done and how much they help, even as foreclosure rates hit record-setting levels.

"You have to think that it will get worse before it gets better," John Dugan, the U.S. Comptroller of the Currency, said in an interview with Reuters.

Critics say most loan modifications up until a few months ago were temporary and not aimed at providing for sustainable payment plans, so it comes as no surprise that homeowners are defaulting.

At the same time, a lenders' group known as Hope Now warned on Monday that the number of U.S. homeowners seeking help to avoid foreclosure would double next year to 2 million.

The housing crisis and the recession will keep Congress busy when it returns on January 6, 2009, from a holiday break, and preoccupy President-elect Barack Obama after he is sworn in on January 20.

Between January 6 and the inauguration, congressional Democrats are expected to introduce legislation urging more aggressive efforts to help those homeowners who are in over their heads.

A bill being drafted by Massachusetts Rep. Barney Frank might include a sweeping mortgage relief plan from Federal Deposit Insurance Corp Chairman Sheila Bair, a House aide said on Monday.

The bill is sure to insist that more be done to help homeowners under a plan already under way -- the Treasury Department's $700 billion Troubled Asset Relief Program.

That plan, known as the TARP, has given hundreds of millions of dollars in aid to banks and, more recently, to major U.S. automakers. But Frank and other Democrats contend the TARP is doing little to help homeowners.

WHAT IS LOAN MODIFICATION?

The Office of the Comptroller of the Currency and the Office of Thrift Supervision, both key U.S. banking regulators, said that after six months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent.

After three months, 19 percent were 60 or more days delinquent or already in the process of foreclosure, they said.

"One very troubling point is that whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months," Dugan said in the joint OCC-OTS report.

Possible explanations for the high re-default rate include the faltering economy as well as loan terms were not being modified enough to help homeowners, Dugan said.

But critics said the data were misleading because they included repayment plans that did not significantly modify home loans.

For example, some repayment plans freeze the interest rate for just a year, according to the Center for Responsible Lending, a nonprofit group that aims to help homeowners.

"You really have to work it out to a sustainable loan, not just one that is designed to default because after a year it's going to rise again," said spokeswoman Kathleen Day.

A spokesman for IndyMac Bancorp, which was taken over by the FDIC in July, said lenders were only tinkering with loan terms up until a few months ago and not making true modifications.

"Modifications in the past were never about finding the borrower an affordable payment," Evan Wagner said. "So I think it shouldn't be surprising that you are seeing a lot of these folks redefaulting."

The data, some of which was released in preliminary form earlier this month, were based on information collected from some of the biggest U.S. financial institutions, including Bank of America, Citigroup and JPMorgan Chase.

WASHINGTON (Reuters) –
Italian automobile and truck maker Fiat SpA (FIA.MI) agreed to pay more than $10 million to settle allegations of kickbacks linked to the sale of goods to Iraq under the U.N. oil-for-food program, the U.S. Securities and Exchange Commission said on Monday.

Fiat and CNH Global NV (CNH.N), a majority-owned subsidiary of Fiat, made about $4.3 million in improper payments to Iraqi officials from 2000 through 2003 for the sale of vehicles, equipment and parts, the SEC said.

The payments were characterized as "after sales service fees" but no bona fide services were performed, the agency said.

As part of the settlement, Fiat and CNH did not admit or deny any wrongdoing.

"The settlements close a regrettable incident which happened in the long-ago history of the Fiat Group," a Fiat spokeswoman in Milan said. "The Fiat Group has since put in place rigorous internal controls and compliance programs to which the Group and its subsidiaries strictly adhere."

The SEC accused Fiat and CNH of failing to maintain adequate internal and accounting controls to detect and prevent illegal payments.

Under the settlement, Fiat will return $5.3 million in profits plus $1.9 million in prejudgment interest, and will pay a civil penalty of $3.6 million. The company will also pay a $7 million penalty as part of an agreement with the U.S. Justice Department, the SEC said.

The United Nations' oil-for-food program began delivering humanitarian goods in 1997 to Iraqis who faced severe hardship under international trade sanctions then in place. The program, which ended in late 2003, required the Iraqi government to buy the goods through a U.N. escrow account.

The SEC alleged that kickbacks paid by Fiat and CNH diverted money from the U.N. escrow account and into Iraqi-controlled accounts at banks in countries such as Jordan.

Details about the SEC settlement were posted on the agency's web site at: http:/www.sec.gov/litigation/litreleases/2008/lr20835.htm .

The civil case is SEC v. Fiat S.p.A. and CNH Global N.V., No. 08-02211, U.S. District Court, District of Columbia (Washington).